Squeezing-out Minority Shareholders under Korean Corporate Law

The amended Commercial Code of Korea provides for “squeeze-out” rights for shareholders holding 95% or more of the shares of a company. The law will be promulgated from April of 2012. The law also provides for a right of minority shareholders to demand a “sell-out.” It seems possible, under the very vague wording of the amended clauses, for a sell-out to take place at the same time as a squeeze-out with the potential of conflicting appraisals and procedures. We wish the amended clauses would have been more specific, since so many holes are evident that litigation is bound to occur and the outcome of cases will be near impossible for legal counsel to predict. For a squeeze-out the majority shareholder must establish that:  The squeeze-out is “necessary” to accomplish the company’s specific “business purpose.” The wording is so vague that it renders the clause meaningless without guidance from a court.

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Independent Contractors and Obligations under Korea LSA Speech to Amcham Korea

During a recent speech the head of the Korean Labor & Employment Law Team and I gave to the American Chamber of Commerce in Korea, a few interesting topics came up that seemed to be of particular interest to participants. For the Power Point of the presentation click HERE. Factors Courts use to Determine if an Individual is an Employee and Thus Obligated to Provide Severance and Employment Security etc. Under the Korea Labor Standards Act (LSA). These following factors are used by the Korean Supreme Court to determine if one is an “employee” under the Korean LSA. The factors are not weighted equally by courts in Korea. Please note that these factors are not weighted equally by courts and all factors are not required to be met for an independent contractor to be deemed an employee under the LSA. An answer in the affirmative to anyone one of the

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Who Won with the Korean Compliance Law?

Appeared in the Korea Times on June 3, 2011. The National Assembly of Korea has handed Korean companies a fantastic opportunity with the recent passing of amendments to law requiring the appointment of compliance officers to large listed companies. Various pressure groups in Korea have expressed support and opposition to the new requirements that listed companies employ lawyers or law professors of five years experience to oversee the companies’ compliance obligations and to act proactively to head off legal issues before they escalate. Some critics of the new law say it is just a way to find employment for some of the thousands of Korean lawyers who, now, qualify each year. Others, such as Ryu Kwang-choon, the manager of the Korean Listed Companies Association, was quoted as saying, “Large companies have a team of lawyers or a legal department and deal with related issues, but small- and medium-sized firms don’t

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Korean Commercial Code Revisions Make Capital Reductions in Korea Easier

The recently amended Korean Commercial Code (KCC) will make it simpler for local and Korean foreign-capital invested companies to make nominal capital reductions. The law will come into effect next year. Previously in the KCC, there was no differentiation between a real capital reduction, in which assets are distributed to shareholders in proportion to their holdings, and a nominal capital reduction (also known as a reduction of capital “without consideration.”) A nominal capital reduction is, obviously, inherently less cumbersome than a real capital reduction. In the case of a nominal capital reduction, the company in Korea could choose to reduce the book value of assets to, in turn, reduce losses shown in financial statements. This tactic was often used in Korea to help a company show more accurate figures when the real value of the loss is significantly less than the book loss. However, even though there is no reduction

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Korean FTC Fines Korean Refiners for Collusion

In a possible reaction to Korea’s rising inflation, the Korea Fair Trade Commission (KFTC) fined the four major Korean refiners a total of KRW 434.8 billion (USD 442 million) for preventing competition through collusion. The KFTC noted that: “In their meeting in March of 2000, officials of the four refiners agreed to respect the rights of former exclusive oil suppliers to gas stations and refrained from supplying their products to even gas stations with ties with a particular brand in the past.” The KFTC claims that this alleged collusive act, led to consumers being forced to pay increased margins to suppliers even when prices of a barrel of the unrefined product decreases in the international markets. Korea government is attempting to do anything to reign in on inflation seemingly in every manner with the exception of raising interest rates and the suppliers of fuel, food products, autos and other top

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Failed Korean Corporate Compliance and the Role of Attorneys in Korea

The following article appeared in the Korea Times on May 6, 2011. The National Assembly of Korea, recently, voted in favor of a bill that requires listed companies with large market capitalizations to establish independent compliance support offices. Business organizations strongly opposed the bill. The details of the system are not yet known, since many key aspects of the bill have been delegated to the president through an enforcement ordinance. The surface purpose of the bill is to improve companies compliance with Korean law, thus, upgrading the image of Korean companies domestically and abroad. Some scholars have noted that transparency and other corporate governance issues, within Korean companies, have led to the “Korea discount” and that the discount may be overcome with more active compliance departments. Additionally, fear has spread that an Enron-type scandal may hit Korea in the future and that the implementation of this system may contribute to

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KORUS FTA and Korean Anti-dumping Speech by American Law Firm Winston & Strawn in Korea

Winston & Strawn LLP attorneys gave an enlightening presentation for Amcham today in Seoul, Korea. Attorneys James P. Durling and Daniel L. Porter discussed KORUS FTA and anti-dumping actions against LG Electronics and Samsung by Maytag. What motivated me to write this post is a comment by James Durling, who emphatically noted that Republicans should consider dropping their plan to bundle the three pending U.S. FTAs in favor of pushing for the immediate vote on the KORUS FTA. Good point. The Republicans are pushing to bundle the three FTAs, partly, out of a fear that the Columbia-US FTA may not get to a vote, in the near future, because of the political sensitivity of the Democratic Party to the ratification realities that are plaguing Columbia (strong labor union and violent opposition in Columbia). The Republicans also wish, before the next election, to get President Obama to sign the FTAs to

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Trade Terms for Korean Agreements: Get the INCOTERMS for the IPHONE App

Our friends at the China Law Blog have posted a brief review of a very useful application for those managing international agreements. The application is for those of us without adequate brain cells left to memorize all the INCOTERMS. Also, it contains 2010 revisions. The application is only available for the IPhone and the IPad. All of us stuck with the Blackberry or an Android phone are out of luck. The application may be found at: http://www.tradedict.com/.The China Law Blog may be found at: http://www.chinalawblog.com/ [email protected] (c) Sean Hayes – SJ IPG. All Rights reserved.  Do not duplicate any content on this blog without the express written permission of the author. [email protected]

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EU Korea FTA: On the Fast Track to Passage

The Korean Free Trade Agreement with the European Union, on April 5, 2011, was approved in a Korean cabinet meeting, thus, allowing the Bill to be sent to the Korean National Assembly for approval. The Korean EU FTA will eliminate, within five years of enactment, nearly 98% of Korean import duties. The Korean government and EU trade delegation agreed to promulgate the law by July 1 of this year, but if the Bill is not sent to the assembly before May (May Day Election Year Protests) – the Assembly may run into difficulties in promulgating the law before the July deadline. The EU parliament approved the law in February of this year; the Korean side has been slow because of some puzzling translation errors (200+) and the typical political bickering issues. This FTA will open many opportunities for products that were subject to the higher range of tariffs rates and also will bring down the cost of

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Changes to Korea Insurance Business Act

The Insurance Business Act’s (promulgated on July 23, 2010) Enforcement Decree comes into effect this January 2011. The major changes to the Act and Enforcement Decree are listed below. 1. Credit-Linked Notes are Now Specifically Authorized The previous Act banned providing any debt guarantees by third parties, thus, facially prohibiting many derivative-linked securities common throughout the Western world. 2. Enhanced Duties for Insurance Salespersons, Representatives and Insurers Out of an impression by the government that many insurance companies are targeting the most vulnerable in society, the Act now provides many of the protections afforded to insurance customers provided by the Korean Financial Investment Business and Capital Market Act to financial product customers. Most of these duties are only applied to those selling to the “non-sophisticated” purchasers. A. Duty to Recommend a Product Suited to the Needs of the Insured Thus, the insurance representatives/agents (“agents”) should review the insured present policies,

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Facebook under Watch of the Korean Communications Commission

Facebook has received, in short, an order on December 10, 2010 from the Korean Communications Commission (KCC) to modify its site to comply with Article 22 of Korea’s “Act on Promotion of Information and Communication Network Utilization and Information Protection” which states that: “If an information and communications service provider intends to gather user personal information, they shall obtain user consent.” The order requires Facebook to receive explicit consent from users before personal information is revealed to other users or utilized by third parties. Facebook has 30-days to comply or challenge the order. We will see soon if Facebook will simply take down the Korean language site, challenge the order, comply with the order or simply ignore it. Facebook, as of posting, doesn’t have a local office, thus, enforcement will be difficult for the KCC. Facebook has almost two and half million Korean users and a Korean language version of

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Korean Price-Fixing Law: Defining the Relevant Market in Korea Antitrust Law

The Seoul High Court (2009 NU 1930, May 19, 2010) has overruled a decision of the Korean Fair Trade Commission (KFTC) in a case concerning price-fixing by luxury car importers. The KFTC has appealed the this pivotal price-fixing case.  We shall update the reader. The High Court ruled that a price-fixing arrangement (restriction on discounts from MSRP) between Lexus car dealers was not an “unfair collective act” under Monopoly Regulation and Fair Trade Act Art. 19 (1) thus overruling the decision of the KFTC that imposed a fine and ordered the dealers not to engage in the price-fixing arrangement. The KFTC has also imposed a fine on other luxury car importers. The KFTC opined that the relevant market was the market for the particular car and not the entire car or luxury car market. Thus, the Commission ruled that the act restrained trade absolutely within the relevant particular car luxury

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Sean Hayes in NY Times on Samsung Slush Fund/Corruption Case

Sean Hayes, co-team leader of IPG, was quoted by the New York Times on a  book written by Former Samsung head attorney and Prosecutor Yong-Chul Kim on the Samsung Slush Fund Scandal. Sean C. Hayes, an American lawyer and newspaper columnist in Seoul who has worked for the Constitutional Court and taught at a law school here, said he hopes more “brave souls” like Mr. Kim would speak out about corruption “for the benefit of a promising nation that is being choked by corrupt incompetents.” “The change will have to come from the masses,” he added, “since elite power centers have a firm grasp on most government entities through implicit guarantees that evils will only be dealt with by a little slap on the wrist.” Some quotes from the article:  In his book, Mr. Kim depicts Mr. lee and “vassal” executives at Samsung as bribing thieves who “lord over” the country, its

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Korean Company Law

Dear Mr. Sean Hayes: We are considering opening a subsidiary in Korea. We are a NASDAQ listed company that will enter the Korean market in this coming year. Our first question is what corporate forms are allowed in Korea? We would also like to know what corporate form is the most common for Korean companies and foreign companies in our shoes? Michael in the United States. Dear Michael, under the Korean Commercial Code four basic corporate entities are available. Part III of the Korean Commercial Code details the four corporate entities available in South Korea. It must be noted that most incorporated businesses in Korea chose the “jusik hoesa” corporate form. 1. Jusik Hoesa (Stock Company) Jusik Hoesa is the only form of corporate entity that is allowed to publicly issue shares. The vast majority of corporations in Korea chose the Jusik Hoesa corporate form. It is also the most

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Korean Corporate Forms under the Korean Commerical Code

There are four basic corporate entities under the Korean Commercial Code. 1. Chusik Hoesa (Joint Stock Company)Only form of corporate entity that is allowed to publicly issue shares. An article will be posted on the specifics of forming a Chusik Hoesa in the next couple of weeks and a link will appear HERE when the article is completed. 2. Yuhan Hoesa (Limited Liability Company)A closely held company that is prohibited from having more than 50 shareholders. In recent years a few foreign companies have chosen the Yuhan Hoesa, however, most foreign companies are advised and will form a Chusik Hoesa. A few companies, recently, have chosen this form because of possible U.S. tax benefits. I will explain the tax benefits in a follow-up article. A link will appear HERE when the article is completed. 3. Hapja Hoesa (Limited Partnership)One or more partners may have unlimited liability and one or more

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Criminal Punishment of Corporation for Acts of Employees

According to the Law Times, a Korean legal vernacular, laws which punish corporations or presidents of corporations, regardless of their “intent” or “negligence,” when a corporation’s manager commits a crime may be amended in the near future. President-Elect Lee intends to abolish most of these criminal laws and allow sanctions to be handled through administrative procedures. The Ministry of Justice and some progressive NGOs may oppose the amendments. However, some noted academics and lawyers have already shown their support for the amendments. Kang Dong-Bum, a professor at Ewha University, said that “Calling corporations and presidents to criminal account only because of the acts of an employer is wrong and they should be called to criminal account only when they have intention or negligence” Kang also noted, however, tha fines allowed to be imposed through administrative actions should be drastically increased. Expect amendments to be enacted in the later part of

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No American Law Firms in Korea – YET

Posted by:  Sean Hayes (Chair, Korea Practice Group at IPG)[email protected] _____________________ The KOR-EU FTA passed and thus British law firms will be able to setup shop in Korea over a five-year three-stage phase-in period.  All of the leading British firms have begun building relationships with an eye to formal partnerships.  KOR-US FTA, however, has stalled because of opposition of some prominent lawmakers in the liberal parties even though the two FTAs are very similar in scope. The following article is an interesting article on the intention of an American law firm in the Korean market and shows that local firms have nothing to fear and will benefit from these firms’ focus on quality, profitability per attorney and equitable management. Full Disclosure: We have not had a meeting with the firm mentioned in the article. _________IPG is engaged in projects for companies, entrepreneurs and individuals doing business in Bangladesh, Cambodia, China, Korea, Laos,

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Avoid Moral Hazard

Avoid Moral Hazard By Sean HayesAppeared in the Korea Times on January 8, 2008 President-elect Lee Myung-bak, during the campaign, pledged to create a 7 trillion won fund, managed by a presidential body, to assist in alleviating difficulties being felt by credit delinquents. The fund is equal to 5 percent of the ordinary annual budget of 2007. It has been estimated, by the Financial Supervisory Commission, that 3 million individuals are in default on loans and an additional 4 million individuals, because of past defaults, are unable to obtain credit. The fund, in part, will be used to restructure debts and create micro-credit banks. President-elect Lee, according to reports in this and other news sources, may also force companies to delete negative information from credit reports. We hope President-elect Lee won’t fall into this populist trap. He has many bold fiscally sound plans that are needed to lead this country

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Corporate Downsizing the Korean Way

Corporate Downsizing the Korean Way Appeared in the Korea Times on May 18, 2007Lex Pro Bono Column Dear Professor Sean Hayes, I am working for a company that has notified us that they will layoff around 25 workers. I heard that under the Korean Labor Law an employer cannot dismiss employees without just cause. Is this true and what can I do to protect my job? Worried in Yeouido. Dear Worried, the Korean Labor Law provides some protection from dismissal by employers, but provides little protection for employees that are dismissed because of serious economic difficulties facing an employer. Korean Labor Law is codified in the Korean Labor Standards Act (LSA). The LSA is a statute that dictates the working standards for most workplaces. The statute is vague and most of its language has been developed through case law. Article 30 and 31 of the LSA assist in guaranteeing employment

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Four oil companies fined for price rigging

Korea Herald Feb. 23, 2007 The Fair Trade Commission yesterday slapped fines of 52.6 billion won ($54.5 million) on four major oil refineries for illegal price-fixing. The antitrust watchdog said SK Corp., Hyundai Oilbank Corp., GS Caltex Corp. and S-Oil Corp. were found to have conspired to raise prices of petroleum products such as gasoline, diesel and kerosene in 2004. The FTC also decided to file a complaint against the four companies to the prosecution. “The oil cartel, between April 1 and June 10, is estimated to have caused customer damage amounting to 240 billion won, or 15 percent of the companies’ total sales,” the FTC said. The four refiners’ combined sales from April to June were 1.6 trillion won, it said. “The refiners are suspected of fixing prices for longer periods but as of yet, we only have evidence of illegal practices during those two months.” The oil companies

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